Regional property trends show excess supply

CAPE TOWN – The FNB HPI showed that house prices were softer during 1Q19, compared to 1Q18.

Market strength indicators suggest that the market is still moderately oversupplied, despite supply having retreated in recent months. This favours buyers and limits price growth in the medium term, while the market clears excess stock.

The FNB provincial HPI shows that the Eastern Cape was the strongest performer in 1Q19, averaging 5.7% y/y, up from 5.2% in 4Q18. This outperformance was further corroborated by evidence from the estate agents’ survey, which pointed to less severe demand-supply imbalances in the province. In particular, the average time a property remained on the market was estimated at 12 weeks and 2 days in 1Q19, versus the lengthier national average of 15 weeks and 3 days. Furthermore, the number of genuine viewers per show room was estimated at 13, versus a national average of 10.

On the opposite end of the spectrum, Gauteng was the weakest performer in 1Q19, with prices slowing to 1.3% y/y (2.3% y/y in 4Q18), the lowest since 2Q17. Demand-supply imbalances appear to be relatively more severe in Johannesburg, with average time-on-market estimated at 16 weeks and 5 days. In contrast the northern parts of the province, particularly Pretoria and surrounds, appear to be enjoying healthier levels of demand, with time-on-market estimated at 8 weeks and 5 days in 1Q19 – the best reading in the country.

The resurgence in the Western Cape has lost momentum, with prices steadying around 4.6% y/y in 1Q19 from 4.8% in 4Q18. Nevertheless, the region still outperforms the national market on many fronts, with average time a property remained on the market estimated to be 11 weeks and 2 days in Cape Town.

In KwaZulu-Natal house price growth has slowed over the past 9 months. Data from 1Q19 showed a modest 2.4% y/y, versus 3.7% in 4Q18. This ties in with the agents’ perceptions that the demand-supply imbalance is relatively more severe in the region, with the average time a property remained on market being estimated at a lengthy 23 weeks and 3 days in Durban, versus the national average of 15 weeks and 3 days.

This outcome is in line with consumer sentiment, which appears to have soured significantly in the region. According to the FNB/BER Consumer Confidence Index, the indicator for KZN registered -15 points in 1Q19; significantly worse than the country average of 2.

The five smaller provinces’ house price growth was largely in line with national trends, averaging 3.7% y/y in 1Q19, slightly down from 4.1% in 4Q18.

In sum, house price growth is reeling from the depressed levels of disposable income growth, due to weak labour markets, higher taxes and the rising cost of living. While we expect a transitory boost in sentiment post elections, it may take a while before it permeates into an acceleration in house prices, particularly since the market is currently oversupplied.